GiG Works Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥22.26B
• Operating Income: ¥15M
• Net Income: ¥-754M
• EPS: ¥13.72

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Gigworks (2375) reported FY2025 Q4 consolidated results under JGAAP with revenue of 222.61 and operating income of 0.15, against a challenging backdrop of a 12.2% YoY revenue decline. Gross profit was disclosed at 59.54 (26.7% margin), while SG&A expenses were 63.58, implying negative core operating spread that was offset by other operating factors to deliver a small operating profit. Ordinary income was 0.05, and profit before tax showed a loss of -4.34, indicating the presence of sizable extraordinary losses not captured in non-operating items alone. Despite the pretax loss, net income was positive at 2.72 (EPS 13.72 yen), helped by below-the-line effects; however, YoY net income fell sharply by 96.3%, underscoring earnings volatility. DuPont metrics indicate a calculated ROE of 9.7%, driven by thin net margin of 1.2%, high asset turnover of 2.85x, and leverage of 2.79x. Operating margin remains extremely slim (0.1% by operating income/revenue), with EBITDA of 4.34 (2.0% margin) signaling limited operating buffer. Cash generation was solid at the headline level: operating CF came in at 3.63 and investing CF was a net inflow of 8.37, producing reported FCF of 12.00; however, this benefits from asset sales and is unlikely to be recurring. Liquidity appears adequate with a current ratio of 136% and working capital of 15.26, supported by cash and deposits of 17.44. Gross debt totals 19.65 (short-term 11.86, long-term 7.79), largely offset by cash, implying modest net debt of about 2.21 and a conservative net leverage profile. Interest coverage based on EBIT is weak at 0.77x, reflecting very low operating profit headroom relative to interest expense of 0.20. The effective tax rate prints as -69.1% due to a pretax loss and tax expense accruals, pointing to one-off items and/or valuation allowance movements. Asset turnover is high for an outsourcing/BPO-centric model, but the margin structure is fragile and operating leverage remains unfavorable. Accounts receivable of 29.81 imply receivable days of roughly 49, reasonable for the business mix. The balance sheet shows owners’ equity of 27.06 (BVPS around 141 yen by our calculation), providing a modest equity cushion. Dividends are unreported and payout ratio signals are mixed (calculated 8.1%, reported 0.1%), so distribution visibility is limited. Overall, results highlight resilient cash conversion in-period but structurally thin profitability and sensitivity to one-off items, warranting focus on recurring operating earnings quality and normalization of below-the-line impacts.

Profitability Analysis

ROE_decomposition: ROE 9.7% = Net margin 1.2% × Asset turnover 2.85× × Financial leverage 2.79×. The ROE is sustained predominantly by high asset turnover rather than margin strength. margin_quality: Gross margin is 26.7% (59.54/222.61), but SG&A of 63.58 exceeds gross profit, indicating negative core operating leverage before other operating items. Operating margin is ~0.1% (0.15/222.61), and EBITDA margin is 2.0% (4.34/222.61), both well below typical Japanese outsourcing/BPO peer medians (often mid-single-digit operating margins). Ordinary income is barely positive at 0.05, while pretax loss (-4.34) implies large extraordinary losses. operating_leverage: Revenue declined 12.2% YoY while operating income rose to 0.15 (from a small loss base), suggesting cost actions and/or other operating gains offset part of the topline contraction. However, fixed cost absorption remains weak; interest coverage on an EBIT basis is only 0.77x, highlighting limited shock-absorption capacity.

Growth Assessment

revenue_sustainability: Revenue of 222.61 fell 12.2% YoY, indicating demand softness and/or portfolio pruning. High asset turnover (2.85x) suggests operational intensity remains, but the drop raises concerns about client activity levels and project timing. profit_quality: Net income of 2.72 contrasts with a pretax loss of -4.34 and tax expense of 3.00, producing a mathematically negative effective tax rate (-69.1%). The spread between ordinary income (0.05) and pretax (-4.34) indicates sizable extraordinary items; therefore, current net profit is not a clean indicator of run-rate earnings. outlook: Near-term outlook hinges on stabilizing topline and restoring operating margin to mid-single-digits. Cost discipline and mix shift to higher-margin services are needed. Given the thin operating margin and weak EBIT-based coverage, growth without margin improvement could strain returns.

Financial Health

liquidity: Current assets 57.16 vs current liabilities 41.90 yield a current ratio of 136% and quick ratio of 136% (inventories unreported). Working capital is 15.26, and cash & deposits total 17.44, providing a liquidity buffer. solvency: Total liabilities 57.16 vs total equity 27.97 imply a liabilities-to-equity ratio of 2.04x. Interest-bearing debt is primarily loans (short-term 11.86, long-term 7.79), totaling 19.65; with cash of 17.44, net debt is roughly 2.21, indicating low net leverage. capital_structure: Debt mix is skewed to short-term borrowings (11.86), reflecting some refinancing risk, though cash balances mitigate near-term pressure. Equity base (owners’ equity 27.06) supports operations but leaves limited room for sustained losses without margin improvement.

Cash Flow Quality

earnings_quality: OCF/Net income is 1.33x (3.63/2.72), suggesting reasonable cash conversion relative to reported earnings. However, reported net income is influenced by extraordinary and tax effects; ordinary income and EBIT are much weaker than NI indicates. FCF_analysis: Reported FCF of 12.00 is driven by OCF 3.63 plus a positive investing CF of 8.37, which likely includes asset sales. Core FCF (OCF minus capex) is approximately 2.91 (3.63 - 0.72), a more conservative indicator of recurring cash generation. working_capital: Accounts receivable of 29.81 equate to roughly 49 days of sales (29.81/222.61 × 365), which is reasonable for the business; inventories and payable dynamics are partially unreported, limiting full working capital assessment.

Dividend Sustainability

payout_ratio_assessment: Dividend data are unreported. A calculated payout ratio of 8.1% vs a reported 0.1% suggests inconsistencies in source definitions or timing. Given the small NI (2.72), any dividend would likely be modest. FCF_coverage: Using reported FCF of 12.00, coverage appears ample; using core FCF (approx. 2.91), coverage for a small dividend would still be comfortable. Visibility is limited due to unreported DPS and total dividends. policy_outlook: Given thin operating margins and earnings volatility from extraordinary items, a conservative dividend stance is likely prudent until run-rate operating profitability strengthens. Explicit policy signals are not available in the provided data.

Risk Assessment

Business Risks:

• Demand variability in outsourcing/BPO and field support services impacting utilization and revenue.
• Pricing pressure and wage inflation compressing already thin margins.
• Project timing and mix risk affecting quarterly profitability.
• Client concentration risk typical in BPO/IT support segments.
• Execution risk in cost control and service-line mix shift toward higher-margin offerings.

Financial Risks:

• Very low EBIT-based interest coverage (0.77x) leaving little buffer against downturns.
• Exposure to extraordinary losses, impairments, or restructuring charges impacting bottom line.
• Refinancing risk due to reliance on short-term borrowings (11.86) despite healthy cash.
• Potential working capital swings (receivables timing) affecting OCF.
• Tax expense volatility leading to non-intuitive effective tax rates.

Key Concerns:

• Sustainability of operating profit given SG&A exceeding gross profit before other operating items.
• One-off items driving divergence between ordinary income, pretax income, and net income.
• Reliance on asset disposals for positive investing CF boosting reported FCF.
• Margin restoration necessary to meet interest servicing comfortably on an EBIT basis.

Investment Implications

Key Takeaways:

• Topline contracted 12.2% YoY to 222.61 with operating margin ~0.1%, underscoring profitability fragility.
• ROE of 9.7% is maintained by high asset turnover and leverage rather than robust margins.
• EBITDA margin is 2.0% and EBIT coverage of interest is only 0.77x, highlighting limited operating cushion.
• Cash generation is adequate in-period (OCF 3.63), but FCF strength is aided by asset sales (investing CF +8.37).
• Net debt is modest (~2.21) against cash of 17.44, supporting liquidity despite short-term debt reliance.

Metrics to Watch:

• Operating margin and EBITDA margin progression quarter-on-quarter.
• Ordinary income vs pretax income gap to track extraordinary items.
• OCF to net income ratio and core FCF (OCF minus capex).
• Interest coverage (EBIT/interest) and refinancing of short-term loans.
• Receivable days and working capital swings.
• Service mix and gross margin trajectory.

Relative Positioning: Within TSE small-cap outsourcing/BPO peers, Gigworks exhibits below-peer operating margins with relatively high asset turnover and modest net leverage; improving margin quality is the key differentiator needed to close the performance gap.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis